Don't Race Out To Buy Hikal Limited (NSE:HIKAL) Just Because It's Going Ex-Dividend
It looks like Hikal Limited (NSE:HIKAL) is about to go ex-dividend in the next three days. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Hikal investors that purchase the stock on or after the 4th of September will not receive the dividend, which will be paid on the 23rd of October.
The company's next dividend payment will be ₹0.40 per share. Last year, in total, the company distributed ₹0.60 to shareholders. Calculating the last year's worth of payments shows that Hikal has a trailing yield of 0.3% on the current share price of ₹204.23. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Hikal has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Hikal paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Hikal didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. The good news is it paid out just 8.0% of its free cash flow in the last year.
Check out our latest analysis for Hikal
Click here to see how much of its profit Hikal paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Hikal was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Hikal has seen its dividend decline 1.0% per annum on average over the past 10 years, which is not great to see.
Get our latest analysis on Hikal's balance sheet health here.
The Bottom Line
From a dividend perspective, should investors buy or avoid Hikal? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
With that being said, if you're still considering Hikal as an investment, you'll find it beneficial to know what risks this stock is facing. Be aware that Hikal is showing 2 warning signs in our investment analysis, and 1 of those is a bit concerning...
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.